Losses double at Southern Cross

11/05/2010 Robert Tyerman

Southern Cross Healthcare Group is pinning hopes on its ‘New Horizons’ recovery policy after nearly doubling interim losses to £22.9 million.

Britain’s largest care home operator increased turnover 4.2 per cent to £481 million in the six months to March, which saw the number of homes operated rise by 18 to 752 while average occupancy slid from 88.8 per cent to 86.9 per cent. Fully-listed Southern Cross cut net debt by £7.4 million from September’s year end to £25.7 million in March, though cash fell by £25 million to £6.8 million over the same period.

The company extracted an average weekly fee increase of 3.2 per cent to £553 during the first half-year. It lifted the percentage of its homes in England accorded Two and Three Star ratings from 77 per cent in September to 81 per cent in March.

Chief executive Jamie Buchan warns of a ‘challenging environment’ for Southern Cross, which derives much of its income from local authorities and so confronts a combination of ‘public sector funding restraint and significant disparity in the commissioning practices of local authority budget holders’. That is why he stresses how ‘imperative’ it is for the company to deliver its ‘New Horizons’ programme of improving service, cutting costs and increasing the proportion of care home residents paying for themselves.

Southern Cross argues by spending £6 million on ‘New Horizons’ it can wring £20 million of extra value every year. Buchan proclaims ‘by the end 2011, the company will be a materially better operational business with an improved brand reputation’.

If so, it will not be a moment too soon for investors, who have seen the shares fall from more than £6 in 2007 to 63p today. That is a fraction of the levels at which previous boss Bill Colvin and colleagues sold large chunks before a missed banking re-payment two years ago started the slide and 34p below Growth Company Investor’s sell recommendation in March.